Tuesday, August 07, 2007

Incremental infrastructure development

Some African entrepreneurs are proposing a radical new approach to building badly-need infrastructure. Rather than waiting for beleaguered and/or inept governments to come up with and allocate the large sums of money it takes to build cell phone networks, electric grids, roads, etc., they are using private funds to build these systems incrementally (and modularly).This approach is proving successful in overcoming inertial, getting things jump-started and building public support. This may turn out to be a useful model for many poor countries struggling to connect their people and businesses. Perhaps some civic-minded American entrepreneurs will take notice given the negative economic implications of our crumbling infrastructure here in the U.S. (GW)

Building big, starting small

A radical new way for poor countries to get the phones, electricity and roads they need

IN 1997, IN the midst of a vicious civil war that was tearing apart the Democratic Republic of Congo, entrepreneur Alieu Conteh decided it was time to build the country's first mobile-phone network.

The odds were stacked against him: He couldn't get equipment or loans. The handsets cost too much. He hired welders to build towers, one by one, out of scrap metal.

Now his phone network is the most important piece of infrastructure in the country, the only way most Congolese can communicate with their neighbors and with the wider world. Conteh's company, CWN, grew into Vodacom Congo, with 3 million mobile phone users and a market valuation of $1.6 billion.

His success is an example of a new strategy for building infrastructure in Africa that might revolutionize the continent. Called "incremental infrastructure," the idea is to build essential facilities -- telephone networks, power grids, roads -- in small pieces using private investment, instead of relying on large, centrally planned, government-run projects.

The rise of mobile phone networks linking more than 100 million Africans across the continent and the blossoming of cybercafes from Cape Town to Dakar are evidence that incremental infrastructure is already transforming the continent. But Africa needs go beyond telephones and computers. Many nations lack roads, electric power, schools, hospitals, clean water. If the lessons learned from building telephone and Internet systems can be applied to other types of African infrastructure, African entrepreneurs could find themselves wiring villages, paving roads, and perhaps even building airports -- building the new Africa while turning a profit in the process.

Across the African continent today, the lack of modern infrastructure holds back agriculture, manufacturing, and services. Without roads and ports, farmers cannot sell goods to distant markets for higher prices. Factories can't operate without reliable electricity supplies. Travel from city to city and country to country takes days instead of hours, making regional trade difficult.

Building infrastructure was a major focus of development efforts in the 1960s and '70s, when the World Bank and other institutions lent large sums to developing nations for massive building projects, like the Akosombo Dam in Ghana, which flooded nearly 4 percent of the nation's land area to create hydroelectric power. Many of these projects had adverse environmental impacts; others put nations deep into debt. And some of the funding was pilfered by corrupt contractors and government and bank officials.

Conteh's project offers a new model. While it's very expensive to blanket a nation in mobile phone coverage, it's quite inexpensive to build a single tower. With even one tower in a major city, Conteh found that customers would queue up to buy phones, giving him revenue to finance additional expansion. In an incremental infrastructure model, each investment starts generating revenue quickly, allowing an entrepreneur to finance more infrastructure.

Conteh's customers were his most important investors. By purchasing phones, they purchased the most expensive component of a mobile telephone network: the handsets. By sharing the costs -- and ownership -- of infrastructure with the end users, incremental infrastructure projects turn customers into investors.

The availability of mobile phones has had unexpected economic impacts. Farmers check prices in the market before putting their harvests onto trucks or boats for sale. Carpenters, welders, and other technicians no longer need shops -- they have their tools and their mobile phones, and travel to work where it is available. Leonard Waverman, a professor of economics at the London Business School, has found that an increase of 10 mobile phones for every 100 people in a developing country leads to an increase of 0.59 percent in GDP per capita. The existence of a communications infrastructure benefits the whole economy.

Several African nations have pursued incremental strategies for Internet connectivity, allowing multiple service providers to connect to the Web via private satellite dishes. Entrepreneurs are able to set up these companies for tens of thousands of dollars, and some businesses thrive, providing much-needed information services to local businesses. An Internet boom has led to American businesses outsourcing data entry to Ghana, and to a regional network in West Africa that helps farmers trade agricultural products.

Successful Internet and phone projects suggest that there are at least three common characteristics of successful incremental infrastructure projects. These projects are atomic: A small part of the infrastructure is useful by itself, like a single mobile phone tower that allows people in a single city to make calls to one another. The projects are financed in part by users, lowering the costs for the operator: Mobile phone users buy their handsets and Internet users purchase their own computers. Finally, these projects are providing capabilities that weren't available before: they're new services, not an upgrade of existing systems.

Using these three criteria, it's possible to predict what types of infrastructure might be deployed incrementally. It's hard to build a railroad atomically, as rails aren't useful without engines and cars, and those are expensive -- too costly to be owned by most consumers. But high-quality toll roads could be built between a small village and a city to improve local commerce. That small section of road is useful by itself, and the system is financed in part by users buying cars and trucks.

British telecom journalist Russell Southwood has an intriguing proposal that might lead to an incremental approach to expanded electric power in Africa. In his Balancing Act newsletter, Southwood points out that mobile phone companies in Africa are inadvertently becoming power companies. To maintain power to their mobile phone base stations, companies maintain thousands of diesel generators, sometimes spending $20,000 a month to ship diesel fuel upriver to remote stations.

If African nations were able to build better, more reliable power grids, phone companies wouldn't have to invest so much money in generators. But perhaps the solution is to go in the other direction: phone companies could become incremental power companies. If base stations built significantly larger power generators -- preferably using renewable energy sources as well as diesel -- they could sell excess power to their surrounding communities.

Companies might find themselves building a power backbone to connect the base stations in a region and allowing communities in their path to connect to the grid. A nation like Congo might find itself with multiple power grids -- the grid run by the national power company and "microgrids" run by phone companies, some as small as a single generator and a connected community.

Transport by road is virtually impossible in Congo. The nation, the size of Western Europe, has less than 2,000 kilometers of paved roads. But it has more than 200 airports, most of which are unpaved landing strips at the edge of dense forest. These strips allow hundreds of private airlines, some of which own a single plane, to connect far-flung corners of the nation. The investment to run one of these incremental airlines is modest -- a refurbished Antonov aircraft, two pilots, and a mechanic -- and their safety record is abysmal. But this air infrastructure makes trips that would take weeks by water possible in a few hours, and opens up trade between regions of the country that would otherwise be impossible to reach.

While incremental infrastructure projects are orders of magnitude less expensive than old-style development projects, initial investments in the millions of dollars are still outside the capabilities of most investors. Governments that encourage foreign direct investment -- especially investment from their diasporas -- are more likely to see incremental infrastructure develop.

Some African nations are taking the idea of an investment climate seriously. The newly formed Investment Climate Facility for Africa, supported by both public- and private-sector investment, is helping governments overhaul business licensing requirements, which reduces the steps necessary to build new businesses. If ICF wants to support incremental infrastructure, it will need to work closely with regulators to ensure that very small companies are allowed to enter power and telecommunications sectors and to compete on level playing fields against much larger companies.

The infrastructure challenges most African nations face are enormous. Just to meet sub-Saharan Africa's current power demands, for example, could cost $70 billion in new power plants -- even more if African nations begin using power to process minerals locally instead of exporting them to China, North America, and Europe. But the success of entrepreneurs like Alieu Conteh suggests that African infrastructure is a big problem that demands a small solution.

Ethan Zuckerman is a research fellow at the Berkman Center for Internet and Society at Harvard Law School.